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Old 04-09-2016, 01:33 PM
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Rent loss insurance payments

Hi,
A rental property completely burnt down in a national disaster wild fire. Insurance will pay for loss of rent for a year or so. Are these payments taxable? Should they be treated as regular rent? If so, since depreciation, interest payments, local taxes, insurance expenses etc aren't available any more to offset the rent income, it will result in significantly more declared income and more taxes.



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Old 04-09-2016, 04:21 PM
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Hi,
A rental property completely burnt down in a national disaster wild fire. Insurance will pay for loss of rent for a year or so. Are these payments taxable?======>>it depends; in general, insurance compensation for a loss is not taxable, unless there is something else going on relating to taxable income or depreciated value. Since it was a rental property that you owned that you rented out in business, then you are depreciating the property, I mean, taking a tax deduction for wear and tear that reduces the value of the rental pty. In that case, any amount of insurance payment that is more than the depreciated value is possibly taxable as a depreciation recapture, regardless of how you spent it or how much was "left over." That is, if the insurance paid you $80K for the house and everything in it, but the depreciated value of the house and appliances and such was only $70K, you have a $10k taxable event.



Should they be treated as regular rent? If so, since depreciation, interest payments, local taxes, insurance expenses etc aren't available any more to offset the rent income, it will result in significantly more declared income and more taxes.==as mentioned above.
Unless you are a real estate pro, your Rental losses are always classified as "passive losses" for tax purposes. This greatly limits your ability to deduct them because passive losses can only be used to offset passive income. They can't be deducted from income you earn from a job or investments such as stock or savings accounts.



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Old 04-09-2016, 09:12 PM
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Clarification

Hi Wnhough,
I have to clarify the question. I am not asking about the main insurance payment for the lost house, but specifically about the rent loss insurance, that is, $1,400 per month for 12 months or so.
You say that the property is being depreciated, but my point is that it is not, any more, there is nothing left to depreciate.



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Old 04-09-2016, 10:49 PM
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Quote:
Originally Posted by Monsoon View Post
Hi Wnhough,
I have to clarify the question. I am not asking about the main insurance payment for the lost house, but specifically about the rent loss insurance, that is, $1,400 per month for 12 months or so.
You say that the property is being depreciated, but my point is that it is not, any more, there is nothing left to depreciate.
then yes it is recovery of your rent loss so it is taxable rental income; Rent loss insurance is an insurance against a landlord's loss of rentof course, since you deduct the insurance premiums as deductible expense, so the payout is taxable income. However, there is no deduction for rental income that is not received.but you can deduct all of the expenses you have paid during the year that are related to the rental property except for your mortgage payment



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